Cleantech - Lowry on Morgan Stanley, SQM supply, lithium market generally - Cleantech - InvestorVillage
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Msg  342 of 717  at  2/26/2018 11:06:23 PM  by

rightjake


Lowry on Morgan Stanley, SQM supply, lithium market generally

 

Lithium prices to fall 45% by 2021, Morgan Stanley says
Growth in electric cars will be insufficient to offset rising supply of lithium from Chile, according to analysts at Morgan Stanley, who forecast prices dropping by 45 per cent by 2021. New lithium projects and planned expansions by the largest producers in Chile threaten to addaround 500,000 tonnes per year to global supply by 2025, the bank said. We expect these supply additions to swamp forecast demand growth,Morgan Stanley said. Lithium prices have more than doubled over the past two years as demand surges for the key battery raw material due to growth in electric cars. A Tesla Model S uses more lithium in its batteries than 10,000 smartphones, according to estimates by Goldman Sachs. Carmakers are scrambling to lock up supplies of the white metal, to back ambitious rollouts of electric cars. Tesla is in talks with Chile's SQM over supply of lithium hydroxide, Chile's regulator said in January. This year will the be the last year of a global lithium deficit, however, Morgan Stanley said. There will be significant surpluses from 2019 onwards, the bank said. It would take much higher EV penetration rates to offset these surpluses and balance the market,� the bank said. Battery electric cars would have to make up 31 per cent of global sales in 2025 from less than 2 per cent currently toclear the market, they said. Morgan Stanley forecasts the price of lithium carbonate will fall from $13,375 a tonne to $7,332 a tonne by 2021, and then towards its marginal cost of production at $7,030 a tonne thereafter.The bank also downgraded its ratings on the stocks of the two largest producers of lithium, Albemarle and SQM, to
underweight from equal weight.Over the past years both companies have secured an agreement with Chileï's regulator to expand production capacity in the country, which has the worldï's largest reserves of lithium. The two companies will alone add an additional 200,000 tonnes a year of lithium by 2025, increasing Chileï's share of the market to a third of global supply, it said.
 
Joe Lowry, formerly at FMC, industry consultant:
"Morgan Stanley's predictions of an additional 200K MT of supply from Chile by 2025 and a steep price decline is another demonstration of the "big name" analysts not understanding lithium supply, demand or the cost curve. Albemarle's La Negra II expansion taking years to ramp up is just one example of the difficulty bringing new capacity on-line. SQM has little incentive to expand beyond the ~50K MT required in their new agreement. The statement that 500K MT of new capacity will be online by 2025 is well off the mark"
 
 
From the Australian, Feb 7,18 (just after Citibank came out with another doom and gloom projection on the lithium market)
 
As the investment world continues to debate whether the booming lithium industry is heading for an imminent and price destructive oversupply, one of the world’s foremost lithium experts is adamant that the doom and gloom is nothing more than “bad analysis”.

US-based Joe Lowry has emerged in the past few years as one of the most prominent voices on lithium, having made the most of the fact he is one of the very few people with genuine long-term experience in the space.

He has spent almost three decades working in lithium, including 23 years overseeing global lithium sales for one of the world’s big players, FMC Corp, and his advisory and consultancy group Global Lithium has made the most of the surging interest in the opaque and complex lithium world.

He also stands out for his particularly strong views on the companies, investment banks and executives he believes deserve criticism, and that preparedness to be forthright was again on display when he spoke to The Weekend Australian during his latest visit to Australia this week.

His trip, which included site visits and meetings with ASX-listed lithium plays Pilbara Minerals, Altura Mining, Neometals and Tawana Resources, came amid the ongoing fallout from the recent settlement of a dispute between lithium giant SQM and the Chilean government that opens up the potential for SQM to dramatically expand its big Chilean operations.

The news dented the share prices of Australia’s lithium stocks when it was announced, while Citi on Thursday became the latest big name bank to warn that the SQM-Chile resolution could lead to demand being swamped with oversupply.

Citi’s latest report said the SQM deal would add another big chunk of supply to a market that the bank already expected to be oversupplied by 2019 as Australia’s new hard rock lithium mines start up.

“While we are fundamentally bullish on EV demand, the risk is that Chinese demand growth alone cannot absorb the near-term growth in supply, before global EV penetration rates gain momentum from mid next decade,” the Citi analysts warned.

Citi’s words proved enough to prompt another selldown in lithium stocks yesterday, but it’s the sort of view that doesn’t hold water with Lowry.

“The whole idea that because of this new deal there will be huge oversupply is just bad analysis,” he said.

Missed in the detail of the SQM resolution, he says, is an onerous new royalty regime that will significantly lift the production costs of SQM’s Chilean operations.

And the fact the Chilean tenure will again be the subject of renegotiation from 2030 will temper SQM’s willingness to pump big sums into developing new capacity for the longer term.

Instead, he says, the truce will lead to a more modest increase in SQM’s Chile production but will accelerate its pursuit of its new projects elsewhere, including its hard rock joint venture in Australia with Kidman Resources.

“They actually have more of a bias now with the new royalty scheme and the fact they have a 2030 window on this to do Kidman just as quickly,” he said.

It’s not just overly bearish analysts who find themselves on the receiving end of Lowry’s criticism.

Lowry has at times found himself clashing publicly with the speculative investors who have piled wildly — some would say blindly — into small-cap lithium stocks.

Those speculators are overwhelmingly Australian, and their utter conviction in their investments and their closedmindedness to alternative points of view is on par with the most passionate bitcoin trader.

In particular, Lowry has found himself clashing with the backers of AVZ Minerals, which is evaluating the Manono lithium deposit in the Democratic Republic of Congo. The stock has soared from 2c to 30.75c in the past year, taking its market capitalisation beyond $550 million.

Lowry has consistently warned about the challenges facing AVZ but has often found himself under fire in various corners of the Twittersphere and internet chat forums.

“I think a lot of the bad choices are being bailed out by the rising market,” Lowry says. “I see people saying I’m going to invest in this company or that company but they have no real analysis why. They’ll see something on Twitter and they’ll roll the dice.”

His critics say the spectacular rise of AVZ’s shares prove him wrong, but there is a difference between being lucky and being smart.

“If you want to be part of the lithium casino then go ahead and do that, but that’s not what I do because the odds of AVZ actually being built are almost nil,” he said.

“When you’re that far from the coast in a country with issues like the DRC have, (why would you invest when) there are so many other good options for lithium projects?”

Australia’s lithium up-and-comers, meanwhile, have received Lowry’s tick of approval following this week’s visit. He is a big advocate for the downstream processing plans now being pursued by most of the Australian lithium companies, noting that processing lithium concentrate into the chemicals needed for the manufacture of batteries will improve margins materially.

“The opportunity I see for all these guys in the long-term is making the lithium chemicals here,” he said. “You have to crawl before you can walk but I think everyone wants to go down the value chain if possible.”

While Australia’s resources industry hasn’t historically covered itself in glory when going downstream, Lowry says the geographical advantages of Australia should serve it well in developing a meaningful battery materials sector.

He says battery manufacturers in the likes of Korea and Japan will prefer a supply chain that doesn’t involve needing to source material from China.



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